Down, But Not Out

Ep. 5 How Arcane Had to Remodel After Small Changes Led to Declining Revenue

November 01, 2021 Nick Hollinger Season 1 Episode 5
Down, But Not Out
Ep. 5 How Arcane Had to Remodel After Small Changes Led to Declining Revenue
Show Notes Transcript

In this episode of Down, But Not out Nick talks to Eric Vardon about how his company, Arcane, began to struggle due to a combination of small changes that snowballed into a 30% drop in revenue. After growing Arcane to 15 million in revenue, changes in management, losing key clients, and hiring too many people too quickly, Eric had to figure out how to recover from the sharp loss in revenue. Listen to find out how Eric was able to navigate these tough waters with the help of his team.

Hello everybody and welcome to another episode of Down, But Not out the show where founders tell their real-life stories of entrepreneurial resiliency I started this show after my one company Visitor Queue was dealt a death blow by Google that led to us almost losing all of our clients and all of our revenue and that would have happened if it wasn't for the hard work determination and resiliency of our team I love a good underdog so these stories resonate more with me than the story of the one billion dollar exit or the story about how your company IPO'd these are stories of grit meant to inspire you the listener to keep fighting as entrepreneurs and business owners we will have our backs against the wall multiple times so let hearing these stories be your fight song your who raw that thing that gets you out of bed on those tough days. This episode is brought to you by my company Visitor Queue identify the anonymous companies visiting your website so your sales team can follow up with them start your 14-day free trial at visitorqueue.com. Now let's dive into this episode. Today I'm joined by Eric Garden, Eric has over 20 years of experience as an entrepreneur having founded and exited several companies throughout his career. Eric is also an advisor and investor to a few different industry-leading technology companies Eric's most recent venture, Morpheo, is a first of its kind AI-powered digital marketing analytics software that monitors your marketing efforts for you and alerts you of any anomalies, Eric thanks for being on the show are you ready to share your Down, But not out story? Absolutely Nick ready to go. Awesome so I don't know if my intro sufficed but let's have you give an intro for yourself as well. Yeah, it's completely fine, you know long time entrepreneur always been in the specifically in the marketing side of technology I guess and that's kind of what got me started and still in it to this day so most of the things that I'm interested in both personally and in investing and spending my time and whether it's in business or advising or directly involved generally is in that area it's what gets me excited and yeah happy to chat about it. Awesome so I know going into this the story that is mostly around Arcane but you've had a long journey leading up to Arcane and throughout your career so can you tell a bit more about kind of the businesses and your story leading up to Arcane? Yeah so I mean again I've always been around the marketing side and so I've been in agency most of my career started out on the production side and building websites and all sorts of great things in the early 2000s when not many people were doing it and you could charge a lot of money for it that's right yeah well yeah you charged a lot of money for it and we were really young and had you know great opportunity and fantastic clients and you know flying all over the place and meeting great people and really just had to learn how to build a business I had no career training in running a business or did I know necessarily you know what an entrepreneur was but you just figured it out along the way from accounting to sales to account management and you know managing expectations and staff and all those kinds of things you just sort of figure it out and so you know fast forward started a another agency called Arcane in 2011 and grew it quite rapidly and it was just a great you know timing was was on our side it came out of the last downturn and accountability for marketing and investment in clients budgets kind of came back but a lot of questions that they were asking were very different in terms of not just giving us decent budgets and time frames but what are you going to do with this budget and what is the expected return and you know we had answers and ideas of how to really change the business model and and that's kind of how we grew we promised a return a rate of return for digital marketing investment we were able to show that in the data and it became you know quite easy for us to move traditional media dollars over into digital marketing dollars a lot of pay-per-click and search engine optimization and you know custom web website development for you know speed and optimization and lead generation and online sales and all those great things and we were able to you know combine new business with the growth of existing clients with a few you know key clients that helped us grow and we you know moved from you know zero to 15 million in revenue in a few years we moved three offices we bought a couple small agencies to help us manage you know gaps in our resources as well as gaps in our ability on certain talents and branding and you know heavy development and those kinds of things you know and had a whole bunch that that actually didn't go through from an acquisition perspective so we were just you know John, and I and Brian, Tony sort of the four partners just you know focused on as much growth as possible and then figured out that we had to look inside and you know talk a little bit about that thing called profit and you know process and departments and business units and so that was a really good stuff that was really unique challenge of of building a business but then actually having to you know have that wave catch up to you which you know is part of what we're going to talk about so with with rapid growth and hiring you know 100 people in a few years and then four offices across Canada and clients everywhere in different needs it it became you know pretty crazy and a lot of things we did right but you know a lot of things we did wrong of course yeah and to kind of take a step back revenue kind of guaranteeing a return on investment. Were you taking a commission or just the traditional agency approach of X amount per hour? Yeah it was more about a value-based approach so we would you know quote on you know estimated hours if you will but we really tried to add a premium for many of the founders in the leadership that were involved very senior would be would be heavily engaged in the client's business to ensure that maximum return you know would be seen especially in the early parts of the relationships of new business and because we love it and we love business we love marketing and I think that you know helped us have great conversations and you know from that it just sort of spawned you know on and on and on and it kind of grew from there you know in the metrics we promised and all the things that we came with you know it definitely it definitely was on the service side but we we had a few arrangements on a performance performance based model but it was really difficult you know to extract the data enough or for us to take enough risk early on where we you know were able to build that and I think as the business grew you know looking at hours looking at profitability and how to manage resources and plan for resources and deal with teams and you know pay bans and all those things means you need to to cash flow and advance the the business more succinctly and more specifically in a traditional sense and so we we kind of you know moved towards that as how we built and and stopped doing a lot of the you know paper performance side awesome and then kind of taking a step forward over the 0 to 15 million dollars in revenue and mult a few hundred employees where were the big leaps like obviously getting started takes takes the longest and then gaining that traction and then there's usually big leaps in there from going to doubling one year doubling what were those big leaps that you remember yeah I mean the biggest one that that comes to mind I mean we're we had a couple key major clients that at the time represented a little over 50 of our revenue which you never want and how many key that made up fifty percent roughly I mean how many like I like are we talking 15 keys oh no I mean handful really two or three and one major that represented the bulk of that you know like I said which you don't want but service-based business needing you know capital from a traditional bank or you know raising capital or those types of things you don't really need it but at our scale we are at the point where we probably should have and so we we you know made you know we made that sort of conscious decision to be able to keep the revenue from a small handful of clients you know more than it should be so that we could actually build the business and and not have to have you know external noise from you know financers and all those kinds of things so that was part of our strategy and I think it worked worked fairly well for you know for what we needed yeah and then back to the big leaps one where were like what years were these leading up were there was there a big trajectory kind of in the past few years was there or was that early on when did you land I guess the big major client was that a building block client from the beginning yeah so like I said the example of like the landing of that was my was my first one but yeah to expand on it we needed a place to we needed people and we needed a lot of and I remember one day three three examples one being one day what was that monday morning kickoffs and we would you know have all the offices join on Zoom etc but 11 people start on one monday morning which was you know pretty insane to have that many people start on on one day in the whole yeah you know onboarding needs from it but prior to that we had moved from a small office to a medium-sized office of you know three thousand square feet to about fifty twelve thousand square feet we're like okay this is going to be enough after about eight months it wasn't and we looked at a building here in London as you know which was dilapidated and one of our our good friends and clients at York Developments was planning this sort of we work space thing if you will and and we looked at it and we're like this is amazing and at the time there really wasn't too much going on from a tech perspective I mean there was but not as much downtown it was a little bit shared acro around different parts of the city itself and this was going to be of their plans wasn't an anchor for the the you know the tech movement downtown and to build that density in the core so we we looked at the plans and we looked at where we were going with our business and we just decided not to take one floor or two floors but to take all three and you know almost 40 000 square feet and to go through an entire renovation with them while building the business why why wouldn't you do that right so that was a a massive leap where we already had a whatever amount of years left on the other lease and had to rent that out which we did and you know got lucky on that but that was a that was a a huge a huge one so that's number two and then lastly number three we worked on the expansion of the of the west for our business and trying to manage clients in in calgary and in Vancouver and British Columbia et cetera and we had no idea of what the west was like so why not go and try to you know acquire an agency at west and long story short we did in Calgary about three or four months before oil dropped you know from a hundred dollars a barrel to a lot less and couldn't have had worse timing and he worked out in in the end but those were three major leaps that again all worked out but at the time you're like what are we doing and why are we doing this but you trust your instincts and and it worked out but those are the three that come to mind right off the top yeah so over there 20- 2011 to 2019 I think is kind of where we are at this point and then you have Arcane it's grown to 15 million revenue give or take a few hundred employees multiple offices you're Canada-wide it sounds like any clients in the U.S. canada-wide yeah both for sure north america okay and then as you've kind of alluded to your Down, But Not Iut story starts to starts to happen walk us through that yeah I mean it was I think it was 2000 let's say 18 2018 okay the early part of 2018 and you know we had gone through points of consolidation where you know understanding the profitability we needed in the business and you know do we need all these offices and is it the right you know group of of leadership and all that great things and so we went through from a founder's perspective knowing that John and I more specifically and John at the time had sort of moved on already to event connect and was was the CTO of that business and I was the CEO of Arcane and working heavily with with Brian at the at the time and and Tony of course as well and so we had decided earlier on in 2017 that we would move away as from the founders perspective and also managers and you know I was the President the CEO and also Account Management and doing a bunch of things wearing too many hats as you all do when you're building a business that we would step aside and Lindsay Schneider took over the role of CEO and Dave Bunce took over the role of CO and so we had transitioned them after about a year of planning in march of 2018 to lead the organization and that was you know for the most part over overwhelmingly positive, took some transition in time and all those types of things yeah but during that you know a few months after that there was a sort of a shitstorm if you will of a bunch of different things and yeah we had a couple clients based on our our growth of that wave that came you know behind us catches up to you at some point some clients that weren't happy with work that we had done we had some clients that had either been acquired or went under and there were some billings in revenue that you know that that didn't come through there was an election locally and so that slowed down our new business and yeah you know at the same time then we lost you know one major client that put a a huge sort of stranglehold on us and and a bunch of other things sort of but it seemed to all happen at the same time and I was expecting my second child at the time and my wife was you know fairly pregnant and we're going through losing a lot of money and huge amount of stress and there was other lawsuits going on and you know all sorts of again craziness and my breaks went in my car my basement flooded and like there was all of these things that just you're being punished for some surprisingly you know cra needed us to pay something we didn't pay or whatever the examples were I kind of forget there's a list somewhere that I've got but it was just like you need to you need to pay attention to to to the business and so we went through a lot as owners in a management group of we all came together but it was we were in the day-to-day hour by hour in terms of sales targets and profitability and meeting our object our goals of for the bank you know of course managing payroll and all these great things and so we had to do a lot that after eight almost years of running the business forced us to really look inside and and ensure we knew where this business needed to go it at the end of it you know world or energy whatever was saying you need to look at at things and we did and I think we you know we we kind of got through it after it was you know really a year and 12 months of just literally hour to hour focusing on you know all things finances and and making sure everybody was accountable to the things that we you know that that we needed to do we split the business in terms of offense and defense and you know me and Brian and a few others, Matt, we're on we're on offense and we didn't really worry about profitability we didn't worry about the projects getting out the door you know we we really started to focus and on the things that we needed to do to move the needle and subsequently the defense team did the same and that's kind of how we we ran the business and and to this day have that mentality of making sure you know your swim lanes and aren't just wasting time and doing meetings for no reason so you know we we learned a lot and personally going through that when I couldn't you know the worst of it was June - July our baby was due at the start at the end of July I couldn't tell my wife any of this that was going on because I couldn't stress yeah so it was like six or eight weeks after you know the baby was born like just so you know this is kind of what's going on and what we went through and it was yeah to say the least the most unbelievable scary place I've ever been and you know needed a few months after we you know got out of the weeds and and we're sort of free and clear to you know step back and remind myself what we went through it was quite emotional quite stressful and at the end of it needed though in the business after that which we'll get into you know was was really never the same since in a positive way yeah so a lot of lots unpacked there do you do you think in hindsight looking back that the founder stepping away things would have went different if anyone was any one of you were at the home still no not a chance and I think what was great is because that actually forced the ability for us to separate the team and focus on areas that otherwise if we hadn't we if we hadn't worked for a year on splitting up those roles and responsibilities it wouldn't have worked it had nothing to do with them the timing itself nobody knew it was just a culmination of you know again [ __ ] happening at the same time so it's nothing that they could have done but for them as leaders to be able to you know we had a pretty good for a long time so for them to go through that adversity as leaders I know to this day is probably a fundamental turning point in who they are as coaches and mentors and leaders within the business and I of course wouldn't want it any other way you can't change the past anyway so I have to say that but no I think for them and you'll have to ask them if you see them next time but I think for them it was you know something that they'll probably never forget. Yeah that's a common theme across these interviews so far is that that time is really one that imprints into your brain and it's hard to forget kind of how your knees felt how your stomach felt for that full year and yeah but you mentioned it's kind of a snowball of different things but kind of summarize for everybody if you were to put it down to a few things in one sentence kind of what were those major issues that occurred that that caused this to happen in early 2018 sounds like the loss of a client or two and just internal processes or yeah take it away yeah I mean it was a lot of things that many weren't under our control but the one thing that to your point we probably didn't have enough eyes on is just maybe we hoped everything would be as it was because it just figured itself out in years past and maybe we had the same you know evoked response or or or subconscious sort of taking it over where you know now you look at it and if any metric is off in a day you start to flag it and you know something's up and that was probably a few months where we're like oh it'll be fine and you know it it'll work itself out and you know that's a weird coincidence and you know this happens and so that's weird that that's you know that's too bad that that's happening and i think we probably didn't really trust our instincts maybe as much so of all of the things that we couldn't control that was a big one and and maybe on top of that we took our eyes off the internal part of the business and I think ego many times when you're growing and you're younger you're growing a business and you know you think employee count is an important deal and you think top line revenue is an important deal and you don't realize how if you look at it that way actually impacts happiness of team members leadership that they don't have time with individuals you know you get caught up in ego and I think to me that's a a big outcome of probably you know things and decisions in months or years past that eventually caught up to us and and I think you know again not about in our control but those are a few examples for me of things we should probably have caught yeah yeah that is an overly metric that people go for employees right and and they push for it but they don't realize that in doing so and kind of the the things that you realize later on is the more employees you have a lot of the more issues you have to solve the bigger your team the more culture you have to put in the more HR practices you have to put in place the bigger the team doesn't necessarily mean success or happiness of that team right it's something that you need to and onboarding 11 people in one day is tough and you have to properly onboard those 11 people and and as you kind of get larger you realize that the quality of the onboarding is better than the quantity of the people that you onboarded so yeah I think that's an important a lesson it's a metric that's funny that people focus on and it's one that is tied to ego directly I employ this amount of people so that means I'm X amount successful yeah it's a it's an interesting one and not one that i haven't really realized but i think i have that issue as well still to this date of what's our employee account at and that's what a lot of the questions i get is how many how many members on your team and so on so okay so 2011 to great success leading up to early 2018 some issues caught up with you and then it sounds like mid 2019 is when you would have started to figure these out late late 2019 during that time loss of revenue can you give a percentage of kind of the dip that occurred there or any layoffs that occurred there yeah I mean I think it was probably more like 20 to 30 percent pretty pretty quickly and you know the numbers in a service-based business in terms of team members and how do you how you deal with that ultimately impacts the team itself too and it's probably with it was within that range you know but we we we rectified things I think pretty quickly it took about six months but then you know by the end of 2018 we had turned the ship around and that was the the tipping point was we can get through december just based on the seasonality of the business etc based on our targets that we had laid out we would be we would be good and we did that so 2019 started out very very well we were able to to do everything that we could including continuously not paying you know the owners anything for in almost a year and you know all of the struggles that you do when it's your business it's either your cash your time or your your time in your cash it's usually those in those orders but yeah 2019 you know it was sort of that rebirth of the Arcane 2.0 at that time and we took all of the learnings and the team who who you know was just reinvigorated with a different look and feel and the leadership really had that that point in time enough energy and months behind them to really start to do things their way and through 2019 and 20 we had you know never have hadn't seen as much profit as we as we did so 2019 became you know really our greatest success year through through 2020 and you know we'll get into that but it's that year itself was a huge turnaround and when you think of it really it's it was the half a year leading up to it but the low point became unbelievably you know the hockey stick up and to the right for us when we we really started to look at the business from a profit center perspective yeah so 2019 I turned out to be to be really good for us and much easier than 2018 which was again a culmination of craziness so yeah and 20 30 percent dip seems like a reorg is kind of what brought you back out of that to summarize and and 2019 started to to trail up and then knowing the end of this story a little bit at least tell us about what 2020 brought going into COVID and then the sale of Arcane yeah I mean so in 2019 towards the end it would you know we had a we had a technically a five-year business plan we started this business in 2011. So we we as as founders as we do every year we go up to our partners cottage and we take some time together and we figure okay what's the plan and and after all of that energy and the other things investments and opportunities that we had going on leadership we weren't as involved in the day-to-day I was involved in, Brian more than anybody, but even then we had different roles and responsibilities and so we took a look back and said okay what are we going to do with this business and we didn't have all the answers but we knew we needed to figure out again what the next 10 years of Arcane looked like so we wrote down our criteria as owners thought about it for a couple months and then decided that we would you know talk to a mutual friend who owned a small you know m a organization and said here's where we're at we don't know what we're looking for here's some of our criteria is that the right time now is it five years is it ten years maybe we never do it the business is doing well our leadership is doing well we don't you know we're not obligated from a day to day and so we just had a great conversation around what ifs no contracts no nothing and it was the hour after that I got a random Linkedin message from a guy named Thomas with this crazy idea I had a conversation you know briefly with him and you know sort of the rest is history in some respect but he brought to us this concept of bringing agencies together I ultimately acquiring you know you know arcane was the concept but in a way that we would live up to the things that our list meant which would and I won't go through the whole thing but keeping our people intact our brand intact the importance of our our leadership to ensure that they would would not be you know moved over because a lot of the times acquisitions it's people come in and everybody goes out and you know we stole our baby and we didn't want to lose it we wanted to be you know involved we wanted to continue to be owners in some ways so he ultimately you know with his vision brought up you know brought a checklist and an idea of us that gave us all the things and more that we were looking for and and so we worked through the rest of the end of 2019 in March and April or sorry January February and March to try to figure out how the deal would close coveted just sort of you know started at that point in time and we didn't really know what we know now of course and it didn't derail the deal it didn't derail our intent and interest there's no hiccups because it opened at all or I mean there there there was one small thing which was we were designed we were signing our definitive agreement on the day that I think they basically shut the world down March or something yeah so we ended up we signed it but we stayed in a boardroom and had sort of this contingency plan for you know what if so we had it was called the Coronavirus plan or something like that and you know I can't get into the specifics but ultimately it was really interesting because we we sort of knew things were going to work out we knew it was going to be right for the business and because we had kind of been through these downturns before is what we saw it as we knew there would be economic impact that usually is good in in a space like this where we knew digital and think all things digital would probably come out strong from this because workflows change and people will need all things digital and we didn't again know what we know now but together we felt pretty good about it so we we ended up closing the deal at the end of at the end of March 1st of April and again it allowed us to continue to be involved in a passive way and all of things i had mentioned before and yeah and still and still happy and things are growing like crazy within that but you know funny times when you can say it was during the height of COVID you're able to close a deal like that which on its own is another story in terms of going through the due diligence and the mental stress not only before and during but the six months and a year after selling a business is on its own an entire story for sure yeah and then you have Morpho that's also TR growing on the side as well and and a younger startup too so you can only imagine the combination of forces occurring there I usually ask kind of if there's any lessons you learned during the experience and I want to start with that one any lessons you learned during the experience but I also want to know about kind of the the role of having that founding team involved and that being kind of a motivational point where you can't kind of tap out because you have three others that are relying on you and vice versa right so yeah first anything from kind of a lesson standpoint that you wanted you you would want to pass on to someone that might be going through a similar experience or that might go through that similar experience from the [ __ ] storm part yeah yeah I need any lessons from there it's to me and i actually had this conversation with John today it's when you're in it and when you're facing it's almost impossible to to think that you can get through it because it's at the time taking and consuming everything and all of your passion and energy and at the same time when you have a big company like that you can't ever let anybody feel it and so you have to put on this mask of positivity and in positive emotion and you have to keep clients happy and you have to keep the team members going and even though there's a sense and a feeling you know it's really quite difficult to balance those two but I bring that up because at the end of it you always get through it and no matter in history is a great example of this no matter what the world has been through from a historic perspective you know there's always a way through it and it always ends but it's always worse before it gets better and you don't know when that worse is you know so the lesson I learned is that there isn't anything I can't deal with and i think as entrepreneurs you learn to there's this notion of you know fear turns on a reptilian brain thing and you end up acting on behalf of fear and you can't actually think straight I think entrepreneurs have so much practice in busting through that fear to figure out a solution on the other side and I have learned to deal with even the most you know personal things with that same mentality of I'll get through it I need to think rationally I need to really understand you know what's going on right now you know and to me that's the biggest lesson I've ever learned with that you know being something I then had to go alone through because of what my wife was going through normally it's the family support is always there too but I didn't have that for a few months of it thankfully I was able to after all was well but that layer of it really taught me to you know to be able to deal with with things even at that even at that level the partnership side I think we uniquely have been very close friends for a very long time we complement each other we know not to step on any toes we sort of know how to deal with it we've never really had any big fights or anything like that one thing we did early on was you know I sort of took the realm of holding the vision and all those kinds of things whether I wanted it or not but at the end of it that's what we agreed to and we never had to go into our shareholders agreements we never had to go into who has this voting or that voting etc we we really were able to be empathetic towards each other and the things that were going on and do what each of us do well within our business lanes and it worked out very well and so I've had bad partnerships and I can tell that story another time but we've all been there some are great some are bad but this one is quite unique and quite special we're still obviously very close to this day and that we wouldn't have made it through if all of us weren't as close that's for sure because it definitely puts things to the test yeah one thing you touched on there is kind of being alone and feeling lonely and a lot of entrepreneurs if they're solo entrepreneurs or even with a co-founder they might be more emotionally or or actually monetarily invested into it right so they kind of feel alone at the top with this great partnership you have was there a feeling of still being alone or did you always feel like you had three others that were going through it with you yeah I mean there is definitely a layer of of it I mean I'm again fortunate enough where i can say anything to these guys and or in my in my family life and i think i have that i have a very very special relationships that allow me for that flexibility you know but I am a big believer in peer-to-peer groups and or advisors and or coaches or whatever i like the peer-to-peer side because you know it's a good example of having your own you know board of directors for yourself not just to the business but you as you are as a human and again i have that relationship with them but in some cases it's good to have a sounding board of different views and different concepts and different backgrounds so for any entrepreneurs out there that don't have it look at those peer-to-peer groups I'm still heavily involved in YPO there are many others depending on criterion needs and locations and all that but I would say no I wasn't alone I never felt like I was alone and I've always had a great networking group but to this day I talk with agencies all over the place and friends and it's usually just helping coach through emotional personal things because you're right they probably don't have business partners and they have no one to go to and that is probably the norm I think I was very lucky and very lucky with the relationship that I have yeah your founding team is usually the ones that can make it that three to four people to even two people in there usually make it further because if one feels like given up there they're dragged along with it with the rest of them right so I think that's an important one this is a really good story to kind of give a recap 0 to 15 million started in 2011 built up to beginning of 2018 it looks like some of the founders were kind of trying to move on to work on some other stuff arcane was in a good place some things snowballed very quickly including your brakes giving out and a few personal issues with your with your house but on the arcane side which led to a 20 to 30 percent drop in revenue but you guys jumped back in quick enough and were able to recover from that within within a few months and then get the business right back up to to a good year in 2019 and then a sale of the business in in early 2020 it's a really good story it really is and a near-death kind of a near a Down, But Not Out story definitely with that 20 to 30 percent drop that's similar to what Visitor Queue saw and like you said it it's only 20 to 30 because you stopped the bleeding right if you if you weren't in there it could be a lot less and Visitor Queue saw that 20 30 but we were could have been down to zero and anything is better than zero so getting back up to 70 80 is always better but that growth after always feels good as well especially after you've put everything in in those few months to bring it back. So let's wrap it up there Eric thank you for for sharing and that's all for this episode to everyone listening right now please leave us a review as they really do help drive awareness for the show also subscribe to the show to be alerted of new episodes and finally like and share this episode on social media with your friends help us spread the word of Down, But Not Out thank you everybody we'll see you on another episode.